There should be no alternative

Many qualities have been ascribed to
Margaret Thatcher
in the days following her death last Monday. Courageous, unbending, determined, ruthless, disregarding, even hateful. But one quality came first: clarity. By the time she became British prime minister in 1979, Mrs Thatcher had no doubt that decades of centralised state and union control had brought the former imperial power to its knees. It should have been bleedingly obvious. But only Mrs Thatcher had the clarity to articulate it and act upon it.

National historical episodes may differ. But the sharpest ­contrast with Mrs Thatcher’s Britain is the glaring failure of Julia Gillard’s government to diagnose the nature of Australia’s current economic challenge.

For Ms Gillard’s minority government, the purpose of office is about spreading the wealth of the resources boom. The Prime Minister had a very good week in China, taking Australia’s political relationship with Beijing to a “new level’’. Yet amid this foreign policy triumph came news that next month’s federal budget may continue to project deficits over the next four years; GM Holden will cut 500 jobs despite billions of dollars of ­taxpayer handouts; Ford’s former global chief executive Jac Nasser thinks Australia’s car industry will not survive a 28-year high in the dollar’s trade-weighted value; and Woodside ­Petroleum shelved its $45 billion onshore Browse liquefied ­natural gas project in Western Australia.

Rather than spreading the wealth of the mining boom, it is blindingly obvious that the most pressing issue is that Australia has become one of the highest-cost economies in the world in which to do business. The shelving of Woodside’s Browse project follows BHP Billiton’s cancelling of its massive Olympic Dam expansion and its iron ore exporting outer harbour at Port Hedland. The resources boom has reached the peak of its massive expansion cycle but export prices have turned down while costs are still rising.

This high cost base will not only bring this expansion phase short but undercut the next potential wave of development in iron ore and gas as other national suppliers take market share.

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In the meantime, the looming downturn in the mining investment phase means the economy will be grasping for other sources of growth just as it is hit by a squeeze on national income. But this growth handover is being frustrated by the strength of Australia’s “safe-haven’’ dollar, which may be rising to a new level following the Japanese central bank’s decision to flood its economy with yen in order to stoke inflation and to drive its currency lower. This is forcing what the AFR Weekend dubs the “dollar revolution’’ across Australian business.

Yet Ms Gillard’s government seems to have nothing to say about Australia’s high cost structure. It continues to throw billions of dollars to prop up the car industry. But that just adds to its budget problems and inflates the cost structure for the rest of the economy, from resources, services and the rest of manufacturing. The government refuses to see that Australia’s car industry will never stand on its own feet without a massive uplift in productivity that would require a revolution in workplace regulations and culture. Instead, it is giving more powers to the unions to enter workplaces and foment disputes.

Following the global financial crisis, then prime minister
Kevin Rudd
spectacularly misdiagnosed the end of a 30-year experiment in so-called neo-liberal economics that began with Mrs Thatcher and US president
Ronald Reagan
, and proclaimed the advent of a new era of social democracy. As this week’s tributes to Mrs Thatcher have highlighted, Thatchernomics deeply informed Australia’s 1980s economic reform program under
Bob Hawke
and
Paul Keating
.

Any clear diagnosis of Australia’s current challenges would call for a return to this program. The open question now is whether
Tony Abbott
is the leader to do this.